Some former customers of First Niagara Bank in Buffalo, N.Y., which was bought by KeyCorp last month, will receive up to $22 million in refunds of overdraft and bounced-check fees, according to a recently disclosed regulatory order.

The refunds were mandated as part of a consent order issued to First Niagara on Sept. 6 by the Office of the Comptroller of the Currency. Cleveland-based KeyCorp completed its acquisition of First Niagara on Oct. 7; First Niagara in June had warned investors about plans to issue the refunds.

Ninety percent of the refunds have already been paid, said David Lanzillo, a spokesman for the $136 billion-asset KeyCorp.

The refunds relate to a "process issue" tied to certain customer deposit accounts that First Niagara publicly disclosed in October 2014. The issue involved "unintentional ambiguity in the language in its deposit account documentation about how certain service charges" were to be assessed for consumer and business accounts, Lanzillo said. Those service charges included some overdraft and insufficient balance fees. The inaccurate fees were assessed between 2012 and 2015.

In its disclosures, First Niagara said it would subtract deposited funds that were not yet available for withdrawal to obtain the adjusted balance used to determine if an overdraft fee was charged. In practice, however, the bank would subtract those deposited funds and also subtract funds for charges that had been authorized but not yet presented to the bank. First Niagara would assess overdraft fees if insufficient funds remained after the additional subtraction.

First Niagara established a $45 million reserve in October 2014 to address the issue; it later reduced the reserve to $22 million. The $22 million reserve is intended to cover customers' refunds as well as associated costs, Lanzillo said.

First Niagara reported the issue to its regulators and hired a third-party firm to investigate the matter. KeyCorp will not be fined or penalized by regulators as a result of the problems, Lanzillo said. The OCC's order "is part of the resolution process and brings this matter to a conclusion," he said. The OCC order requires KeyCorp to form a committee to oversee the bank's compliance with the order.

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